National Roaming Pricing in Mobile Networks
This paper develops a practical model of optimal and competitive neutral national roaming access prices. This method takes account of the geographical cost structure of networks, and thus allows for the “cream-skimming” effect whereby a new entrant will concentrate its own network build in low cost (higher traffic density) urban areas, especially when its uses a technology that has a cost advantage in these areas. Both incumbent and new entrant networks will invest in more geographic coverage when the national roaming access price is set higher – the incumbent will do so because of the extra revenue it will get from roaming charges, and the new entrant will do so in order to avoid paying roaming charges to the incumbent. The paper provides an illustration of how the method could be applied to a situation where the host incumbent is restricted to GSM 900 against a new entrant deploying WCDMA 2.1 GHz. Under realistic assumptions we have calculated that a competitively neutral national roaming access price will be about 38% above the average cost on the host incumbent’s network, although this result will depend on the specific distributions of traffic against geography in the country concerned. An access price set at this level will ensure competitive neutrality between networks, and provide efficient investment signal for the new entrant network.
KeywordsMarginal Cost Retail Price Consumer Welfare Network Coverage Access Price
- Baumol WJ (1983) Some Subtle Issues in Railroad Deregulation. International Journal of Transport Economics, 10(1–2): 341–355.Google Scholar
- Baumol WJ, Sidak G (1994) Towards Competition in Local Telephony. Cambridge, MA: MIT PressGoogle Scholar
- Dewenter R, Haucap J (2007) Access Pricing: An Introduction. In: Dewenter R, Haucap J (eds.) Access Pricing: Theory and Practice, Amsterdam: ElsevierGoogle Scholar
- Economides N, White LJ (Fall 1995) Access and Interconnection Pricing: How Efficient Is the ‘Efficient Component Pricing Rule’? Antitrust Bulletin XL(3): 557–579Google Scholar
- Ofcom (2004) National roaming, a further consultation. July 2004Google Scholar